Peers who break rules on lobbying could be suspended or expelled from parliament, the leader of the House of Lords, Lady Royall, signalled yesterday as she sanctioned two investigations into the "Erminegate" affair.

She told the Lords in an emergency statement that the inquiries would "justly and swiftly" determine whether four Labour peers had broken the rules by discussing payments of up to £120,000 to facilitate amendments to the law to benefit a business.

Scotland Yard said last night its specialist crime unit was considering a complaint from the Liberal Democrats alleging that two of the peers, Lord Taylor and Lord Truscott, could have broken bribery laws by entertaining the offer of cash to change legislation. A recording was later released by the Sunday Times of Lord Taylor saying firms paid him up to £100,000 a year.

The other two peers, Lord Snape and former defence minister Lord Moonie, were also accused by the Sunday Times, after an undercover operation, of offering to use their influence to deliver an amendment to legislation. All four deny wrongdoing. They will be called to give evidence to the Lords interests subcommittee, chaired by Lady Prashar, the former first civil service commissioner. The committee's members also include the former lord chancellor Lord Irvine.

Three of the accused peers were interviewed by Royall yesterday. She told the Lords: "I'm deeply concerned about these allegations. This is a concern that is shared right across the House and beyond. The allegations in the Sunday Times have, in essence, brought this House into disrepute in the whole of the world.

"Therefore we have to take whatever actions are necessary in order to restore trust and confidence in this House."

Twenty peers have declared that they earn fees or shares from companies engaged in parliamentary lobbying, or by providing companies with political and parliamentary advice. According to the Lords' register of members' interests, peers can earn tens of thousands of pounds a year providing lobbying and advice to a range of companies. As many as 140 are thought to work as consultants for businesses.

There is no suggestion that any of the peers have breached the parliamentary code of conduct, which demands that they "must never accept any financial inducement as an incentive or reward for exercising parliamentary influence".

But the extent of the cash links between peers, companies and lobbyists is likely to add to concern that a code of conduct which allows parliamentarians to take payments from the private sector in exchange for lobbying and political advice could be open to abuse.

Last night peers from all parties indicated they would favour tougher sanctions, suggesting there would be support for powers to suspend or expel errant peers. The Guardian understands such a move is seen favourably by ministers.

Royall also, in effect, announced a U-turn by asking Lord Brabazon of Tara, chairman of the Lords privileges committee, to investigate the code of conduct for peers in its entirety, with the aim of tightening up loopholes. Only a month ago the Lords voted to relax rules over the declaration of financial interests by peers when they table an amendment to a bill - the issue at the centre of inquiries concerning the four peers.

The relaxation came after the privileges committee threw out a complaint by Private Eye against a former health minister for not declaring such an interest when he tabled an amendment to health legislation. He had seven paid consultancies. Instead, peers ruled that this was no longer necessary.

Two of the peers named by the Sunday Times, Lord Snape and Lord Taylor, repeated their denials of wrongdoing, but also apologised to the House. "As one of those involved in this incident, may I first of all apologise to your Lordships for bringing this House, if I have done so, into disrepute," Snape said. "May I appeal to noble lords to allow me the opportunity to refute those allegations."

Lord Taylor said: "I feel, within my own conscience, I have followed the rules and the directions that have been given in this House over the 31 years that I have been a member." Another Labour peer, Lord Harris of Haringey, told the Lords he had been the fifth peer approached by the Sunday Times, but had turned down the offer. He said afterwards that the journalists had tried to press him, but he had declined.

This is an edited transcript of the conversation alleged to have taken place between an undercover Sunday Times reporter and one of the Labour peers accused of offering to use his influence to deliver an amendment to legislation